Obama Lays Out the Case for Big Government

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President Obama's second inaugural address sent a message to those who want to reduce federal spending over the next four years: Forget it.

In a refreshingly short address, Mr. Obama laid out a clear philosophical case for more government over less government. That bodes ill for any possibility of compromise with Republicans over the debt ceiling, the sequester, and entitlement reform.

Mr. Obama said that Americans' "celebration of initiative and enterprise; our insistence on hard work and personal responsibility, are constants in our character."

He continued, "But we have always understood that when times change, so must we; that fidelity to our founding principles requires new responses to new challenges; that preserving our individual freedoms ultimately requires collective action."

Collective action, for Mr. Obama, means higher taxes and more government spending, in a broad range of activities ranging from schools to alternative energy to entitlement programs.

So much for reducing federal government spending as a share of GDP from current levels of 24 percent to historical levels of 20 percent. Obama's vision of more collective action will make that difficult.

On entitlements, Mr. Obama said Americans "reject the belief that America must choose between caring for the generation that built this country and investing in that generation that will build its future."

But Social Security and Medicare are growing rapidly. The Congressional Budget Office projects the cost of Medicare to rise from 3.7 percent of GDP in 2013 to 4.3 percent in 2022, and to 14 percent in 2085.

Last fall CBO raised projected Medicare spending by $136 billion over the next decade due to lower-than-expected productivity and higher-than-expected costs for goods and services.

This is being paid by the young, who have higher unemployment rates and lower levels of savings. If the better-off Americans should contribute more, why not better-off seniors? Something needs to be done to constrain the growth of Medicare spending.

Then, consider alternative energy. Mr. Obama said, "We cannot cede to other nations the technology that will power new jobs and new industries."

But alternative energy, such as solar, wind, and biofuels, is more expensive than fossil fuels, especially natural gas, of which America has a 200-year supply due to hydrofracturing. Costly energy acts as a tax on the economy and reduces economic activity and employment.

In 2015, generating a megawatt-hour of electricity with natural gas will cost between $49 and $79, according to estimates from the Electric Power Research Institute. That same quantity of energy produced from onshore wind will cost between $75 and $138, while generating it with solar photovoltaic will cost at least $242 and as much as $455.

Mr. Obama says he doesn't want us to get left behind other countries in the alternative energy area. But Spain and Germany have halted subsidies for solar power because of its high cost. China makes wind turbines and solar panels to export to America, but less than two percent of Chinese electricity is generated by wind and solar.

Of the 33 energy loan guarantees made since 2009 under the Energy Department's programs, 30 have shown signs of trouble, from missed production goals to bankruptcy filings. Of the companies that received loan guarantees, three have filed for bankruptcy so far (Solyndra, Abound Solar, and Beacon Power), two have reported operating losses (AREVA, Nevada Geothermal), at least one (Tesla Motors) has missed production goals, one (BrightSource) has cancelled its IPO, and at least 23 have struggled with poor credit ratings.

A recent House Energy and Commerce Committee report concluded that a quarter of the $16 billion in Energy Department Section 1603 grants was awarded to U.S. subsidiaries of European and Asian companies.

Mr. Obama reprised his "You didn't build that" theme by saying that "no single person can train all the math and science teachers...or build the roads and networks and research labs." This does not mean that it has to be a government function. America has private companies for scientific research and private colleges and universities to train teachers. With new tolling technology, private companies can even build roads, formerly only the province of government.

Raising federal government spending from its historical average of 20 percent of GDP to 24 percent of GDP in 2012 has not been enough for Mr. Obama. His inaugural address is a manifesto for an even bigger share.


Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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